Executive Summary

Global financial markets advanced during August 2025 as resilient corporate earnings, softer US labour-market conditions and increasing expectations of Federal Reserve easing supported investor sentiment. Equity gains broadened across the United States, Europe, Japan and China, while government bonds also benefited from expectations that monetary policy could become more supportive.

The S&P 500 gained approximately 3.7% during the month, extending its recovery from the tariff-related volatility experienced earlier in 2025. European equities also advanced, while the FTSE 100 reached a record closing high above 9,300 during the month. Japan's Nikkei 225 gained approximately 4.7%, and China's Shanghai Composite rose around 8.4%.

The most important monetary-policy development came from the Bank of England, which reduced Bank Rate from 4.25% to 4.00%. The decision required an unusual second round of voting after the Monetary Policy Committee initially divided between a quarter-point reduction, no change and a larger half-point reduction. The final vote was 5-4 in favour of a 25-basis-point cut.

The Federal Reserve did not hold a formal policy meeting during August. Instead, investors focused on Chair Jerome Powell's Jackson Hole address on 22 August. Powell noted that payroll growth had slowed considerably, unemployment had edged up to 4.2% and downside risks to employment were increasing. He stated that the shifting balance of risks could warrant an adjustment in monetary policy.

US inflation remained above target but showed only limited acceleration despite the introduction of higher tariffs. July consumer-price inflation remained at 2.7%, while Powell noted that tariff effects were becoming visible in goods prices but could potentially represent a largely one-time increase in the price level rather than an enduring inflation cycle.

European economic conditions showed tentative improvement. Manufacturing activity returned to expansion territory during August after several years of contraction, while unemployment remained close to historic lows. The European Central Bank maintained its deposit rate at 2.00%, following the substantial easing delivered since June 2024.

China produced one of the strongest equity-market performances globally. Domestic investors returned to equities in greater numbers, while expectations of additional policy support and continued confidence in technology and artificial-intelligence development strengthened sentiment. The People's Bank of China maintained its one-year and five-year loan prime rates at record lows.

Gold advanced approximately 2.5% during the month as geopolitical tension and lower expected US interest rates supported demand. Bitcoin remained highly volatile, reaching approximately $122,800 during August before retreating to around $109,000 at month-end.

Key Themes During August

• Global equities advanced across most major regions.
• The S&P 500 gained approximately 3.7%.
• The FTSE 100 reached a new record closing high.
• The Bank of England reduced Bank Rate to 4.00%.
• Jerome Powell signalled greater concern about US employment risks.
• Markets increased expectations of a September Federal Reserve rate cut.
• Chinese equities rallied sharply.
• Eurozone manufacturing returned to expansion.
• Gold continued to benefit from defensive demand.
• Bitcoin reached another record before retreating sharply.

Global Economic Overview

The global economy remained resilient during August, although the balance of risks shifted. Trade uncertainty diminished somewhat following agreements reached earlier in the summer, while labour-market data increasingly suggested that monetary policy was beginning to restrain employment growth.

United States

The US economy continued to expand, with second-quarter GDP growth revised to an annualised 3.3%. However, this headline strength contrasted with softer labour-market and consumer-sentiment indicators.

Unemployment increased to 4.2% in July, while earlier payroll data for May and June were revised substantially lower. Powell subsequently noted that payroll growth had averaged only around 35,000 per month during the three months to July, compared with approximately 168,000 per month during 2024.

Consumer sentiment also weakened during August, reflecting greater concern about inflation and declining willingness to purchase expensive durable goods.

Federal Reserve

The Federal Reserve maintained its target range at 4.25%-4.50% following the July meeting, with no scheduled policy decision during August. Attention therefore shifted to Jackson Hole.

Powell argued that monetary policy remained restrictive and that downside risks to employment had increased. His comments strengthened expectations that the Federal Reserve could reduce rates at its September meeting if subsequent data confirmed a weakening labour market.

At the same time, Powell emphasised that tariff-related price increases were becoming visible. Total PCE inflation was estimated at 2.6% in July and core PCE at 2.9%, meaning the central bank still faced an inflation rate above its 2% objective.

Tariffs and Inflation

Higher tariffs were beginning to increase selected goods prices, but policymakers remained uncertain about whether the effect would prove temporary or become embedded in broader inflation expectations and wage setting.

The Federal Reserve therefore faced an increasingly complex policy trade-off: maintaining restrictive rates could increase employment risks, while reducing rates prematurely could reinforce inflation if tariff-related price increases became persistent.

Eurozone

Eurozone activity displayed tentative improvement. Manufacturing PMI rose to 50.7 during August, moving above the level consistent with expansion for the first time since 2022.

Unemployment remained exceptionally low, while inflation hovered close to the ECB's 2% target. The ECB had maintained its deposit rate at 2.00% during its July meeting and did not hold another policy decision in August.

United Kingdom

The Bank of England reduced Bank Rate to 4.00% on 7 August. The decision was exceptionally finely balanced, with four policymakers favouring no change and one initially preferring a larger half-point reduction.

UK inflation had increased to 3.5% during the second quarter, and the Bank expected it to peak near 4.0% in September before declining towards target. At the same time, underlying economic growth remained subdued and labour-market conditions were gradually loosening.

The Bank therefore continued to describe further easing as likely to be gradual and careful rather than rapid.

China

China's economy remained dependent upon policy support, manufacturing and exports. The People's Bank of China maintained the one-year loan prime rate at 3.0% and the five-year rate at 3.5% during August.

Consumer prices had been flat year-on-year in July, demonstrating that domestic inflation pressure remained limited. Unemployment increased to 5.2%, reinforcing expectations that authorities could maintain an accommodative stance.

Japan

Japanese inflation moderated to 3.1% in July, down from 3.3% previously. The Bank of Japan continued to assess whether wage and inflation conditions justified further monetary normalisation.

Global Outlook

The global outlook remained broadly constructive, but monetary policy was becoming increasingly differentiated. The United Kingdom had begun another phase of easing, the Federal Reserve appeared closer to resuming cuts, while the ECB was assessing whether its substantial easing cycle had already delivered sufficient support.

Equity Markets

Equity markets delivered broad gains during August as expectations of lower US interest rates, solid corporate earnings and improving trade visibility supported investor confidence.

United States

The S&P 500 gained approximately 3.7%, supported by resilient earnings and increasing expectations of a September Federal Reserve reduction.

The rally was broader than during several earlier phases of the AI-driven market advance. Interest-rate-sensitive companies benefited from declining expected borrowing costs, while technology remained supported by strong demand for cloud computing and artificial intelligence.

Technology and Artificial Intelligence

AI remained one of the principal structural drivers of US equities. Semiconductor manufacturers, cloud providers and data-centre businesses continued to benefit from substantial capital investment.

Investors increasingly differentiated between companies with measurable AI revenue and those whose valuations relied primarily upon expectations of future demand.

Small and Mid-Capitalisation Companies

Expectations of Federal Reserve easing improved the outlook for smaller businesses, which generally rely more heavily upon external financing than the largest technology companies.

Selection remained important because softer labour-market conditions could eventually weaken domestic demand even as lower interest rates reduced financing costs.

Europe

European equities advanced strongly, with the Euronext 100 gaining approximately 3.1%. Investors responded to improving manufacturing indicators and expectations that fiscal expenditure on defence and infrastructure would support regional growth.

United Kingdom

The FTSE 100 rose by just under 2% and reached a record closing high of approximately 9,321 on 22 August. The Bank of England rate cut supported sentiment, although inflation approaching 4% remained a concern.

Japan

The Nikkei 225 gained approximately 4.7%. Moderating inflation and resilient corporate earnings provided support, while investors continued to assess the timing of further Bank of Japan tightening.

China and Hong Kong

China delivered one of the strongest monthly equity-market performances globally. The Shanghai Composite advanced approximately 8.4%, supported by strong domestic participation and improved sentiment towards technology and policy support.

Chinese technology companies continued to benefit from interest in domestic artificial-intelligence development, while property remained a weaker area of the market.

Emerging Markets

Emerging-market assets generally benefited from expectations of lower US rates and improving global liquidity. China made an especially significant contribution to regional performance.

Indicative August Performance

Fixed Income Markets

Fixed-income markets generally benefited from expectations that the Federal Reserve could resume monetary easing as labour-market conditions weakened.

US Treasuries

US Treasury yields declined during parts of August as the probability of a September interest-rate cut increased. Powell's Jackson Hole speech reinforced the view that employment risks were becoming more important within the Federal Reserve's dual mandate.

Long-term yields remained sensitive to fiscal deficits, Treasury issuance and persistent inflation above the central bank's target.

European Government Bonds

European yields remained comparatively stable after the ECB maintained its deposit rate at 2.00% in July. The ECB noted that inflation was at its medium-term target and that previous reductions were continuing to improve financing conditions.

UK Gilts

UK gilt markets reacted to the Bank of England's quarter-point reduction. The very narrow vote and higher inflation forecasts limited expectations of an aggressive sequence of further cuts.

Corporate Credit

Investment-grade and high-yield credit remained supported by positive equity-market sentiment and resilient corporate earnings. Credit spreads remained comparatively tight.

Private Credit

Private-credit markets continued to benefit from demand for flexible acquisition and refinancing capital. Lower policy rates could gradually improve borrower affordability, although declining base rates would also reduce lender income.

Competition remained strongest for high-quality sponsor-backed companies, reinforcing the importance of maintaining underwriting standards as spreads tightened.

Foreign Exchange

Currency markets were influenced primarily by changing expectations for US interest rates and the Bank of England's August reduction.

US Dollar

The dollar weakened as investors increased expectations of Federal Reserve easing. Powell's Jackson Hole comments reinforced the view that the policy balance had shifted towards greater concern about employment.

Euro

The euro remained resilient despite the ECB's lower policy rate, supported by improving European economic indicators and expectations of greater infrastructure and defence spending.

Sterling

Sterling strengthened against the dollar during August despite the Bank of England rate cut, reflecting broader dollar weakness and the expectation that UK easing would remain gradual.

Japanese Yen

The yen remained sensitive to differences between expected Federal Reserve easing and potential further Bank of Japan tightening.

Chinese Renminbi

The renminbi remained closely managed while the People's Bank of China maintained highly accommodative lending rates.

Commodities

Commodity performance was mixed during August. Precious metals gained, while oil prices softened as supply expectations outweighed geopolitical concerns.

Gold

Gold gained approximately 2.5% during August. Lower expected US interest rates, geopolitical uncertainty and ongoing demand for reserve diversification supported the metal.

Oil and Energy

Oil prices softened as investors considered increasing global supply and more moderate demand expectations. Geopolitical developments in Ukraine and the Middle East continued to provide intermittent support.

Copper and Industrial Metals

Industrial metals remained influenced by Chinese demand and investment in electricity infrastructure, manufacturing and data centres. The strong Chinese equity rally improved sentiment towards cyclical assets.

Agricultural Commodities

Agricultural markets remained exposed to weather, tariffs and geopolitical disruption. Trade negotiations continued to influence expectations for major crop flows.

Digital Assets

Digital assets remained highly volatile during August despite continued institutional participation.

Bitcoin

Bitcoin traded above $120,000 during the month and reached approximately $122,800 at its peak before retreating to around $109,000 by month-end.

The reversal demonstrated that institutional ETF adoption and corporate treasury purchases had not removed the market's sensitivity to leverage and shifts in investor sentiment.

Ethereum

Ether remained supported by institutional interest in tokenisation and decentralised financial infrastructure, although performance continued to vary substantially relative to Bitcoin.

Institutional Adoption

Financial institutions continued integrating custody, tokenised securities and blockchain-based settlement into conventional investment infrastructure.

Risk Considerations

• Bitcoin remained capable of large intra-month price reversals.
• ETF and corporate demand could become highly concentrated.
• Leverage remained capable of amplifying corrections.
• Digital-asset regulation continued to evolve internationally.

Private Equity

Private-equity conditions remained constructive during August as strong public markets and expectations of lower US rates improved financing and exit confidence.

Deal Activity

Technology, healthcare, financial services, infrastructure and business services remained among the most active sectors. Buyers increasingly focused on companies with predictable cash flow and limited tariff exposure.

Financing

Expectations of Federal Reserve easing improved the outlook for acquisition financing, while the Bank of England's reduction provided immediate relief to selected UK borrowers.

Exits

Record or near-record equity indices provided a supportive environment for IPO preparation and strategic sales. Sponsors nevertheless continued to retain secondary and continuation-fund alternatives.

Secondaries

Secondary markets remained important for institutions seeking liquidity and for managers extending ownership of high-conviction assets.

CE Global Private Equity Observations

• Lower expected rates improved transaction sentiment.
• Public-market strength supported exit planning.
• High-quality assets continued to attract significant competition.
• Tariff and geopolitical exposure remained important underwriting considerations.
• Operational value creation remained preferable to relying upon multiple expansion.

Artificial Intelligence & Technology

Artificial intelligence remained central to global technology investment during August, while investors increasingly examined the relationship between infrastructure spending and commercial returns.

Semiconductors

Demand remained substantial for advanced processors, high-bandwidth memory and networking infrastructure required for AI workloads.

Cloud Computing

Large cloud providers continued to expand computing capacity. Enterprise customers increasingly adopted AI within software development, document processing, customer support and advertising.

Data Centres

Power, land and grid access remained major constraints. Developers continued competing for suitable sites with secured electricity capacity.

AI Efficiency

More efficient models continued to reduce the cost of individual workloads, potentially expanding overall adoption even where computing requirements per task declined.

Technology Risks

• Capital expenditure remained exceptionally high.
• Model efficiency could alter processor-demand assumptions.
• Electricity constraints remained significant.
• Export controls could limit international semiconductor sales.
• Elevated valuations required continued earnings growth.

Sector Spotlight

AI-Enabled Business Services

August's sector spotlight examines business-services companies using artificial intelligence to improve productivity rather than selling AI infrastructure directly.

Professional Services

Accounting, legal, consulting and compliance businesses increasingly used AI for research, document preparation and data analysis.

Customer Service

Automated assistants improved response times and allowed human employees to focus upon complex interactions. Successful implementations generally combined automation with human supervision.

Financial Administration

Fund administration, insurance processing, lending and payment operations offered significant opportunities for document extraction and workflow automation.

Healthcare Administration

AI could reduce administrative workloads associated with scheduling, billing, records and insurance processing without requiring direct clinical decision-making.

Private-Market Opportunities

• AI-enabled compliance services
• Financial administration
• Insurance-processing platforms
• Healthcare administration
• Customer-service outsourcing
• Document and workflow automation

Investment Perspective

AI-enabled service businesses offered a different investment profile from semiconductor and infrastructure providers. The strongest opportunities combined recurring customer relationships, proprietary workflows and measurable labour-productivity improvements.

Regulatory Update

August's regulatory environment remained focused on artificial intelligence, tariffs, digital assets and monetary-policy developments.

Federal Reserve Framework

The Federal Reserve completed its periodic review of its monetary-policy framework. Powell explained at Jackson Hole that the Fed had returned to flexible inflation targeting and removed the earlier emphasis on making up for periods of below-target inflation.

Artificial Intelligence

International businesses continued preparing for staged implementation of the EU Artificial Intelligence Act, including governance, documentation and risk-management requirements.

Digital Assets

Financial institutions continued preparing for a more developed regulatory framework surrounding custody, tokenised assets and stablecoins.

Trade Policy

Although trade uncertainty had diminished relative to April, tariffs remained substantially above pre-2025 levels. Businesses continued reviewing customs classifications, supply chains and contractual pricing.

Private Markets

Managers needed to ensure that strong public-market performance was incorporated consistently into valuation methodologies without automatically assuming equivalent private-company appreciation.

Compliance Priorities

• Review the implications of the revised Federal Reserve framework.
• Continue EU AI Act implementation.
• Maintain tariff and country-of-origin monitoring.
• Review digital-asset custody and regulatory developments.
• Apply consistent private-market valuation policies.
• Monitor labour-market weakness within portfolio companies.

Looking Ahead

Markets entered September expecting the Federal Reserve to consider its first rate reduction since December 2024, with employment data becoming increasingly important to the decision.

Federal Reserve

Payrolls, unemployment and inflation would determine whether policymakers concluded that downside employment risks outweighed the temporary inflationary effects of tariffs.

Bank of England

After reducing Bank Rate to 4.00%, the Bank was expected to proceed cautiously. Inflation was projected to reach approximately 4% before declining, limiting the case for another immediate reduction.

European Central Bank

The ECB's September meeting would determine whether rates remained at 2.00%. Inflation was close to target, while eurozone manufacturing showed early signs of improvement.

US Labour Market

The pronounced slowdown in payroll growth represented one of the most significant risks to the global market outlook. Further deterioration could support bonds and rate-sensitive assets while simultaneously increasing recession concerns.

China

Investors would assess whether August's powerful equity rally was supported by improving earnings and domestic demand or had primarily reflected liquidity and speculative participation.

Artificial Intelligence

Technology earnings would continue to be evaluated against extraordinary capital expenditure. Businesses demonstrating measurable revenue and productivity benefits were likely to remain favoured.

Digital Assets

Bitcoin's reversal from approximately $122,800 to $109,000 demonstrated the continued importance of disciplined position sizing and liquidity management.

Private Markets

A potential US rate cut could improve financing sentiment further. However, weaker employment and slowing consumer demand would require greater caution within economically sensitive sectors.

CE Global Private Equity Perspective

August demonstrated that lower interest-rate expectations can support valuations even as the underlying reason for those expectations becomes less favourable. A Federal Reserve reduction driven by controlled disinflation would be constructive; a reduction prompted by rapidly deteriorating employment would create a more challenging environment.

CE Global Private Equity believes that attractive opportunities remain across AI-enabled services, healthcare, infrastructure, cybersecurity and specialised financial services. Companies capable of using technology to reduce operating costs without depending upon speculative infrastructure demand remain particularly interesting.

Strong equity markets provide an increasingly supportive environment for private-market exits, but rising valuations require continued entry-price discipline. Conservative leverage, recurring cash flow and multiple exit options remain important as the economic cycle matures.

This market review is provided for general information and discussion purposes only. It does not constitute investment, legal, tax or other professional advice, nor an offer or solicitation to purchase or sell any security, financial instrument or investment product. Market values can rise or fall, and past performance is not a reliable indicator of future results.